SkyWater(SKYT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - SkyWater reported a record revenue of $94 million for Q3 2024, with a positive non-GAAP EPS of$0.08 [5][16] - Combined ATS and Wafer Services revenue totaled $63 million, while tools revenue reached an all-time record of$31 million [5][16] - Gross margin for the quarter was 22%, driven by operational efficiencies and recovery of $5.6 million from a prior cost accrual [6][18] Business Line Data and Key Metrics Changes - ATS development revenue was$56 million, showing a year-over-year growth of 5% but a decline of 9% from Q2 [6][16] - Wafer Services revenue exceeded expectations at nearly $7 million, benefiting from the ability to balance production wafers through the fab [6][16] - Tools revenue, which represents customer-funded capex investments, increased to a record$30.7 million [16] Market Data and Key Metrics Changes - The company anticipates double-digit revenue growth in the ATS business for 2024, with a three-year CAGR for ATS revenue exceeding 35% [8] - The company is experiencing strong demand in the aerospace and defense sectors, with expectations for continued growth in 2025 [12][13] Company Strategy and Development Direction - SkyWater is focusing on expanding its leadership in critical semiconductor technologies and has been selected for multiple projects under the Microelectronics Commons Initiative [10] - The company announced a multiyear supply agreement with NanoDx, indicating a strategic move towards supporting emerging growth technologies [9] - The appointment of Bassel Haddad as senior vice president for advanced packaging aims to build a scalable manufacturing presence in the U.S. [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to execute on key programs and maintain strong customer relationships despite temporary funding constraints [41] - The outlook for Q4 includes expected total revenue of $72 million to$76 million, with a focus on sequential growth in ATS revenue [12][22] - For 2025, the company expects continued growth driven by strong demand in A&D programs and new commercial initiatives [13][14] Other Important Information - The company reported free cash flow positive of $14.3 million in Q3, with total cash at quarter-end remaining consistent at$20.7 million [20][21] - Operating expenses were aligned with expectations at $14.1 million, and the company reduced overall indebtedness by approximately$6 million [20][22] Q&A Session Summary Question: Guidance on gross margin for Q4 - Management confirmed that gross margin is expected to be in the range of 19% to 23%, indicating a flat quarter-to-quarter performance for ATS and Wafer Services revenue [29] Question: Expectations for 2025 and seasonality - Management anticipates overall growth in Wafer Services and ATS for 2025, with seasonality typically seen in Q3 due to A&D concentration [30] Question: Tool revenue guidance for Q4 and 2025 - Management noted that tool revenue guidance for Q4 is slightly softer due to supplier timing, with a significant portion of tool revenue expected to be recognized in the second half of 2025 [34] Question: Accrual reversal implications - The reversal of an $8 million accrual indicates strong progress in a technology development program, with expectations for continued advancement [38] Question: Impact of government budgets on A&D programs - Management expressed confidence in the funding and commitment to A&D programs as the new fiscal year begins, despite previous budget constraints [41] Question: Gross margin trajectory for 2025 - Management expects gross margins to increase in 2025 due to lower tool revenue, with continued growth in ATS and Wafer Services expected to drive overall profitability [44]